Mortgage Reduction Strategy - Advice and Opinions Please

jackhigh

Hi, I’d really welcome advice from members of the site in relation to my mortgage and the strategy set out below.

My wife and I have a joint mortgage with Nationwide totalling c£90k. It’s made up of several elements as we have taken additional borrowing over the years. It’s currently made up as follows:

• Mortgage Part 1. £52k part capital and interest of £30k and part interest only of £30k tracker at RPI +0.34% currently 0.84%.
• Mortgage Part 2. £15k capital and interest tracker at a rate of RPI + 0.34 currently 0.84%
• Mortgage Part 3. £9.5k capital and interest tracker at a rate of RPI + 1.99 currently 2.5%
• Mortgage Part 4. £8.5k capital and interest at variable base mortgage rate currently 4.5%

All parts of the mortgage are due to end in May 2021. I’m just short of 50 my wife 2 years younger.

The interest only element of part 1 is linked to a Standard Life Endownment which is due to mature in February 2013 but likely realise c£20k as opposed to the £30k hoped for. Nationwide’s interest in the endowment is recorded.

I took this endowment out in April 1988 and the broker I took it through has ceased trading (I bet to avoid the potential liabilities). This was before the Financial Services Compensation Scheme which came into force c. August 1988 so I’ve no recourse for compensation. It’s academic now but I would have had pretty good grounds for a mis-selling claim otherwise.

I’m looking at what I should do when the endowment policy matures. It would seem most sensible – if I have the flexibility to do so - to pay off those element of the mortgage that attracts the highest interest rate first (that is part 4 and then part 3) and continue with the elements of the mortgage which are at the lowest interest rates (parts 1 and 2). I’m not sure though if Nationwide will allow that.

So the strategy I’m considering is this:

1. When the endownment matures I would pay off mortgage parts 3 and 4 entirely and c£2k of part 2. That would release about £191 per month in capital and interest payments, together with the £35 I currently pay for the endowment - so a total of £220 per month roughly.

2. I use the £220 to overpay on the balance of part 2 of the mortgage which will allow me to pay that part off quicker. Using a calculator I found on the Internet I estimate that I could pay this off by April 2015 at that level of overpayment.

3. In April 2015 I will have c£14k left of the capital and interest element of part 1 of the mortgage and I can start to apply the £220 each month to the capital element of part 1 of the mortgage and (again using the same Internet calculator) that element should be paid of by 2018.

What this strategy does mean is that I will retain a £30k capital debt which I am not paying off and that I am paying interest on. Over the 9 year remaining term (approx.) term I’d pay c.£2.5k in interest.

The £30k Capital is adequately covered in the event of death from insurances we have and I could pay it off from the lump sum I’ll receive from my pension at 60 (or thereabouts).

This strategy is all predicated on me being able to set the endowment proceeds off against the elements of the mortgage that I want to and not the ‘interest only’ element of part 1 of my mortgage and I’m not sure if I am permitted to do this.

I appreciate this will take a bit of reading but I’d really appreciate any opinions on the strategy I’ve proposed. I can’t help thinking it seems to easy and wonder if I’ve made some obvious errors in thinking.

Thanks in anticipation

Poosmate

Sounds like a sensible plan to me. I guess the six million dollar question though is, will your mortgage provider allow you to do it?

Good luck,

Poo

curlygirl1971

Hi

You would be better moving this over to The Mortgage Free wannabe board for Mortgage specific knowledge and attention